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MEPS Expects Global Steel Production to Increase by 4.6 Percent in 2018

Global crude steel production is forecast
to rise by 4.6 percent, year-on-year, to reach 1.79 billion tonnes, in 2018.
This strong expansion is due, in part, to an estimated gain of 6.3 percent in
China’s steel output.

Following the closure of unapproved capacity, the Chinese authorities are now
able to capture a more accurate figure for the country’s total steel
production, for inclusion in the official statistics. Consequently, China’s
output growth, in real terms, is below the reported 6.3 percent suggests.
Notwithstanding the statistical discrepancies, Chinese steel demand has been
relatively buoyant, this year, and this has enabled mills in the country to
lift their production.

Growth in world crude steel output, excluding China, is forecast at
approximately 3 percent, in 2018. This follows an increase of 4.8 percent, last
year. Global steel demand growth has remained firm in 2018. However, after
hitting the bottom in late 2015/early 2016, the cyclical recovery in the steel
market appears to be reaching its zenith. Indicators suggest that the economic
upturn is losing momentum. Marginal downgrades to GDP forecasts have been
undertaken by a number of global institutions, in recent months. MEPS predicts
that little or no growth will occur in global steel production and consumption,
in 2019.

In 2018, a substantial escalation of trade tensions has developed. The rising
tide of protectionist measures weighs heavily on the outlook for 2019 for both
steel consumption and the wider economy. Trade barriers are expected to disrupt
global supply chains and inhibit end-user demand for steel-containing goods.
Furthermore, they are projected to adversely affect business confidence and investment.

The steel price recovery, and associated strong mill profit margins, in the
past three years, have allayed fears of overcapacity in the steel sector.
However, market participants are becoming more cautious, with expectations of
slowing steel demand growth, in the medium term. Consequently, the previous
uncertainties regarding overcapacity are re-emerging.

New steelmaking capacity installations are planned across the world. Many of
these are in regions where demand currently exceeds supply, such as Southeast
Asia, Africa and the Middle East. Indian steel producers also have plans to
substantially expand production capability. Nonetheless, despite the number of
planned projects, worldwide, MEPS predicts that a proportion of these will
encounter delays or be cancelled. This is due to a range of factors, including
financial constraints, availability of raw materials, lack of adequate
infrastructure and import pressure. Consequently, the problems of structural
overcapacity may remain, but not intensify, in the years ahead.

The extended period of excess supply and unprofitability, prior to the recent
recovery in the steel market, is likely to remain fresh in the mind of steel
producers, in the medium term. Mills, in many parts of the world, are expected
to operate in a manner which would prevent a repeat of those unfavourable
conditions.